Surveillance: Global Tax With OECD's Cormann

Com and of course on the Bloomberg terminal. This is a great joy for Bloomberg Right now, after the fifteen years of public service at the o e c D in Paris, Annael Guria has retired and after a really interesting nominating process, the o e c D selects the Pacific Rim. The heritage of the o c D and the previous five Secretary generals has been Denmark, Netherlands, France, Sweden, France and then it changed to Canada and Gurius, Mexico.

Now the o e c D reaches across the Pacific Rim because sure marble Bonny of Singer Sports says, it is the Asian century and part of that is Australia. Matthias Corman is the o e c d's newly appointed Secretary General. Mr Corman, wonderful to have you with us today and you dive into a treaty and the complexities of a G seven effort to tax the larger companies. A treaty makes it very very difficult as well. How will the o c D monitor and study the treaty

effort to make taxes uniform at well? Firstly good to be uh. Secondly, the globalization and the digitalization of our economies has created distortions and inequities when it comes to the capacity of governments around the world to rise the necessary revenue to fund the public services and supports die provide to their populations. And the only way you can solve a challenge like this is through a global solution

that is multi largally agreed. And in that context, the o CIT has been working for many years to help improve the global taxation arrangements, to make them fairer, to make them work better. Now at the G seven on the weekend, a landmark historic agreement was reached and and that goes to two important components. One to ensure that digital companies, large digital companies but also other large companies that operate multinationally around the world pay their fair share

of tax in markets where they generate significant profits. And secondly, to ensure that multinational companies are not able to structure their tax liabilities, I mean seriously minimize or completely eliminate their tax liabilities anywhere around the world, taking advantage of tax hyns and and so on, and so you know, ultimately this is one step in the process. There will

be other steps to follow. The O E c D facilities a process that is quality inclusive framework which brings together hundred thirty nine countries and jurisdictions from all around the world, and and and and of course ultimately at the G twenty UH further formal agreement will have to

be reached. But the fact that G seven economies, you know, some of the biggest economies around the world, have a great to this reform is a very significant stop step forward in making sure that there is a globally more fair and sustainable taxation framework in place. Before you went to Perth, Australia, within your Belgian economics, you studied the Wilsonian effort coming out of Versailles and how all the

League of Nations collapsed. Basically with the US Congress in the US Senate is the O E C D and a G seven or G twenty tax regime at the back, and call the American legislative branches. I mean, firstly, I have to say that the Biden administration has been very helpful in facilitating I consensus at the G seven on

the weekend. I mean, the Biden administration and Secretary Yelling took a very constructive approach to multilateralism, helping to unblock what had been you know, difficult dossier up until that time. But of course, I mean, ultimately, all countries that are part of an agreement and international agreement ultimately have to work you know, these issues through in their domestic context, including you in, in the context of you know, their parliaments.

And I mean that is that is obviously something that we hope the US will do in its you know, in its own time, in the appropriate way. My DearS G seven agreed to a minimum at least of fifteen percent. Could you see that tax rate going above that fift Well, look, you know, it's important to ensure that we strike the right balance. I mean, the average across the or CIT, the average corporate tax right across the o E City

membership at present sits at about twenty one. There are some countries that are below the fifteen percent, quite a few of them are above the I mean, if if we were able to achieve a circumstance where all multinational companies operating globally are required to pay at least fifteen percent on their on their profits, I mean, I think

that that is a very significant step forward. Of course, there's still then spies for the appropriate competition between different jurisdictions based on the fiscal policy settings and their tax mix in their respective jurisdictions. But yes, there's still a lot to do. As you were mentioning and Tama's referencing, how US legislature may end up taking a lead role. What exactly this looks like. What are the main hurdles that you see in the ongoing negotiations as we had

in the G twenty. Well, look, I mean, you know, clearly, I mean it's very important to have all of the G seven countries reached that agreement, but of course something we need to expand you know, the level of agreement you know well and truly beyond the G seven And that's what the Inclusive Framework process will do with more

than a hundred countries and jurisdictions involved. And indeed, I mean around the G twenty table, you have a you know, significant number of other large economies around the world part of the process. So I mean, I'm quietly hopeful, quietly optimistic that ultimately, when it's all said and done, we will be able to reach an outcome, you know, in the next in the next little while. But I think

it's on the tax plan though. Can we go back to this idea here of what when you're setting the revenue threshold here there's been a lot of talk about how complex agreement is or how much it will be, and the idea that companies will sort of be able to find loopholes to get below that twenty billion dollar threshold or whatever the final threshold. Maybe, how do you ensure that companies aren't going to find and end run

around that with regards to the revenue component of it. Look, I mean you're now going well and truly into the weeds of you know, technical you know, implementation arrangements. I mean, I think the principles are very clear. Companies, large companies that are generating significant profits in markets around the world, digital companies but also other large companies should be required to pay their fair share of tax in the markets

in which they generate those profits. I mean, the combined effects of the globalization and the digitalization of our economies has meant that you know, it has been possible for quite a number of large companies not to pay or to to pay very little, or not to pay any tax at all in many of the market stall pride and and that is just a model of fans and public confidence in the viol taxation system works. And and that is something that the proposal agreed to buy g

seven finance ministers on the weekend would address. I'm gonna tais Corman. I am absolutely fascinated is your selection through the nominating process. Many of the other nominees for o E c D or people very familiar to Bloomberg Surveillance. They've been great helped us in our coverage internationally over the years. You are a different o E c D Secretary General. And I want to go to your Australia, your Western Australia and the idea of the debate over

big evil American tech companies. Maybe it's tangential to O E c D, but this is going to be in the cross eres. The fact is Amazon out of the Perth Airport has been a massive job creator for Western Australia from where you sit with your finance work in Australia and now you moved to Paris. How do you dovetail? How do you fit together the European fear of American big tech with the reality that create jobs like the

per theirport Fulfillment Center. Well, firstly, you know, there's thirty eight member countries of the o e c D and the one thing that joins us all together is that we are all market based democracies and were all committed to generating opportunities for the people in our countries to get ahead based on free market principles and indeed, you know, based on democratic principles and in the counties of rules

biased global trading systems. So I think you'll find that the things that we have in common are much much stronger than than the variances between you know, different parts of our membership. Now, you know, I mean, I bring to this job about seven years experience as the Australian financemen stuff. But I also bring to this job, you know, my background us uh, somebody who grew up in Europe,

went to school and university in Europe. And so I mean, I think, I guess you know, the membership felt that I had a particular contribution to Mike and I look forward to making it. This has been wonderful Mats Corman. Congratulations uh as the new Secretary General of the OECD, we begin strong in as our Troy Gayski joins us with Skybridge here on the making of alphabeta Gamma and

the rest of it within the hedge fund business. Troy, I see all sorts of articles that it's been a really really whipsode challenge six weeks or so for the hedge fund business. How is it? Is there alpha out there? Yeah, but you're write it has been challenging, particularly in long

short equity, really started since February. And what we saw is that remember in this gets back to some of the inflation concerns and where the treasury yield is now, is that you know, the industry is really positioned for you know, slower growth potentially you know, less fiscal stimulus coming, and so they were overweight growth and um stay at home names to some extent um, those have underperformed recently and a lot of the value circulcols have really screamed

and so it's been a choppy environment and law in short equity, you know, last year was a very strong alpha year. This year has been a slight negative alpha year, so it's been harder in the equity part of the capital structure. That being said, if you look at the stress debt managers or those in structure credit, their principally recovery slash value plays. So those have performed very admirably

through June seven so far this year. We could talk all about that, Troy, but really everyone wants to know about bitcoin. And you're holding in the crypto asset. Considering the fact that you have made such a big push saying that this is going to be the key determining factor in your outperformance this year, where do you stand on that now? Given China's noise around potential lockdowns, regulatory issues, and the fact that we're perhaps moving into a new

regime of liquidity. Yeah, so look, we we stepped back and still look at the initial thesis. Right, you still have tremendous money supply growth. You know, the FED is still expanding their balance sheet by twenty billion a month. You know M two's on pace to grow somewhere between fifteen and seventeen percent this year. Um, you think of every central bank in every nation state is still in a debasement period for their currencies. So the macro environment

is still very favorable. And as you're talking about before, you know, it doesn't look like there's any urgency for the Fed to taper. They may announce the taper at the end of this year and start to paper sometime early twenty two, but that's the most likely path. And then from an adoption standpoint, again, we still think we're very early. Um. You look at some of the high net worth are the wealth management platform products. You know,

Morgan Stanleys is raised a hundred fifty million dollars already. Um. You look at gradual adoption in the hedge fund industry and the asset management industry that continue us. And then lastly, we're still relatively early. Closet having you know, the last having was made eleventh of last year, typically have an eighteen to twenty four month bull market, So we still

think we're in a bull market. Obviously we had a very horrific correction, but we think the trend line is still up here over the next three to six months. And you think that the floor built into that Troy I mean because a lot of people look at the current prices. They wonder about some of the institutional embrace of this and whether that's going to be enough of

the floor to keep things from going lower. Well, yeah, so obviously after the big dislocation we had, we built up a nice stability zone here in this thirty three to thirty six thousand level. UM, it will be hard to push meaningfully above forty to forty five UM in the near term. But again, if you go back and look at previous bull markets, you had substantial corrections along the way. UM, this one was obviously more profound. UM. You do highlight a good point on the environmental concerns

is that may slow down some institutional adoption. But again, if you step back and look at your choices for how you play currency to basement, if you care about liquidity and you care about non correlation, you know, Bitcoin in particular is still a very strong choice for you, alongside gold and maybe tell lesser extent copper, But copper of course, you know, it's a very cypical recovery play that's already rallied. UM. You know, it's up percent over

a very short period of time. Troy, I want to talk about the big tech, big cap we've got the Apple conference today, Uh, something that will become a recovery of course across all the afternoon. Troy, there's a comfort factor for hedge funds to own those companies. Describe the intellectual process of hedge funds loading the boat on large cap profit making tech. Yeah, loading the boats a strong terms, because I think there is some distinction in which names

they own. But the industry particularly is as long Facebook and Google as we've ever seen them. You know, when you have great value investors like set farm and with you know, two of the top ten names, or Facebook and Google for instance, says a lot. And you know, so the intellectual process is pretty straightforward. It's like, hey, we're gonna be mean reverting here to a slower growth environment again after a big cyclical growth period. You have

tremendous profit margins, tremendous cash flow generation. There's really no cost pressures in terms of you know, expenses, meaning they're not it's not labor intensive industry that's gonna suffer from higher wages for instance, um and you know, on evaluation standpoint, they haven't been cheaper relative to the broader markets pre pandemic days. So you know, as hedge funds filter through

their choices. Uh, if you're filtering for risk adjusted returns, particularly in an environment that will mean revert to slower growth, does look like uh, standout winners to the hedgemund industry. Troy,

thank you so much, Truck. I ask you a briefly there in the state of alternative investments with Skybridge, We're thrilled to start strong this week with Bruce cas when he's with JP Morgan, their chief economists, had a globally could have a research he hurts the cats to JP Morgan, trying to get out of cogent message on economics, Bruce Lincoln. Global inflation with the recovery that we're seeing dovetail those two in Is it a good inflation or a bad inflation?

I think there's some of both here. Um on the spike that we're seeing, there's definitely some problems in terms of companies adjusting supply to demand. That's the bottlenecks you see in the semiconductor that's the used car prices. Is a bunch of those forces that are pushing up inflation, which is not great in terms of what we would

like to see. The Other side of this, though, is that we are seeing price normalization and what are depressed levels of service prices as we're seeing activity picking up, and I think that's obviously uh constructive. The bottom line those we're getting a big spike in inflation here and we're looking for another big number this week with a

five tense rise in the US core CPI. What happens What does the Fed do if we see that increase in cp I this week, if we see the inflationary pressures, but we don't see material improvement in at the pace of job gains akin to what we saw on Friday. So I think there's three things the FED has to really work on. One is I think continuing to guide us that it's not going to change rates anytime soon in response to an inflation spike that they think is

largely temper Aright. We think they're going to continue to guide that rates are gonna at least be on hold through the end of twenty two. The second thing I think they need to do is start telling us that if they're wrong, and certainly they could be wrong, uh and inflation is more persistent, that down the road they can do what they need to do to keep inflation

under control. And I think in that regard they will, if not encourage, at least tolerate a rising expectation of rates over and then, finally, what we're not going to get in June but we need is more clarity about the balance sheet. I think they're gonna tell us they're talking about it, but they're also gonna tell us it's too soon to really lay out the parameters of what they do in terms of tapering and balance sheet movements.

More generally, our bruce are Bloomberg opinion columnist Marcus Ashworth today says it's really difficult to model UM the US economy because the ferocity has been driven by monster fiscal UH injections, and because the Fed has been deliberately vague about what inflation, what flexible targeting really means. How much harder is that? Is that making your job well? I think forecasting is always difficult, particularly the future UM. Obviously

we're going through a very volatile period. But I think if you take the broad contours that the economy is entering a boom phase led by the consumer, that Europe is joining it, and as you just mentioned, the news on vaccines and virus is starting to look good. Globally. Uh. The simple issue is we're in a very strong phase of growth that's not going to go away anytime soon.

The spike in inflation, I think is largely temporary, but whatever is going to happen here, the FED for the time being is gonna be relative of lee, cautious and continue to hold the line. And I think on the inflation targeting side, the FED wants inflation to get up to the mid twos for a while. It doesn't want it to get above three, and it wants it to settle at two in the media in the medium term.

I don't think these parameters are that far, you know, far away from you know where we might think ranges are, so that there's a lot of uncertainty. Executing is obviously very difficult. I think the Fed is pretty clear on what it wants here. Pruce, Michael Faroli and your team have led the way on our potential g DP just the sort of where are we from a demographic and economic standpoint? Have you tweaked your potential g d P to be a more optimistic statistic coming out of this

pandemic with all the stimulus. It's an interesting question, and we're struggling with that, and we have not changed our view that US potential growth is around one and a half And as you can see in the latest employment report, and you can see more generally, there's been damage done to the supply side on LABE, but at the same time we've had a big productivity there to some of that is the rotation and growth to higher productivity sectors.

It still remains to be seeing what happens here in terms of blasting damage from this effect, and we're not at this point taking a view of really trying to change that you of a one and a half percent potential growth rate, Dr Kasmin, thank you so much, Bruce Kasmin, JP Morgan, Chief Economists, head of all of their global

economic research. This conversation has been hugely anticipated and it does so because Nicholas Bloom, as a young student many many years ago, was at the absolute forefront of labor dynamics, innovation and technology. He did this with someone that's been of such help to Bloomberg on the economy and Bloomberg surveillance, a great John Van Ren And and we're thrilled that

Nicholas Bloom could join us from Stanford this morning. Professor congratulations and your January two thousand twenty one paper, which is the discussion point and work from home. I want to go back to Bloom Kretschmer and then rening of two thousand nine and what has changed as the technology has changed is the new technology the reason work from home will work. You know, it's been a very odd journey,

so you know, it's back drop. I've been working on working from home since I think two thousand and four. I mean that's almost twenty years now, and it was normally a quiet backwater topic until of course March beginning of the pandemic, when it just went wild. Um, it has changed a lot. You know, my experience of working on working from home the last ten years have been kind of different because basically we've got the two final critical pieces. We have video calls so we can do this.

We can know how have talks and zoom and teams on the internet, and we've had Dropbox in the clouds. You can file shares, but files. If you go back twenty thirty years, I talked to people that you know, do working from home in the eighties or the nineties, it was terrible. Yeah, telephone calls and dropping off piles of paper at the front door. If the pandemic had happened, did say, would have been in real trouble. I mean, we couldn't have efficiently. I'm not sure what the lockdown did.

Like thank you know, thankfully we had the ability to flip roughly two thirds of the economy in March. Working from home it worked pretty well. In fact, it looks like a lot of that's here to stay well. But is there a permanence to it? And let's go back to the hallmark you did the paper with ven Rena and crushed where in oh nine Marissa Meyer changed the world at Yahoo in two thousand and twelve thirteen with

a great debate about Yahoo worked from home. Dragged that forward now to where Nicholas Bloom and Mersa Mayer can say there's a permanence to work from home, or like Marrissa Myers, people would say, let's get into the office. Which is it? No, you know, I I spoke to Marissa mar recently about this, and I think what she did is exactly right. But history has kind of forgotten

what she did. So just to be clear, Marissa Maya discovered that there are people that are working home full time, and some of them were like working so poorly, they've never turned on their computer for more, you know, more than over a week at a time. So she said, look, hey, you're gonna have to come in let's say three days a week. You can't work from home full time. You're gonna come in three days a week and be we we're on a monitor and manage you and make sure

what's going on. You know, you're getting your job done. But huge numbers of firms are rolling out exactly this plan now. So you're here, you know, City Bank and Apple and Google, Microsoft, HSBC, etcetera. The world is copying exactly that plan. Now. They're saying, look, post pandemic, you're going to come in probably three days a week in the office. Let's say Monday, Tuesday, Thursday. You work from

home Wednesday Friday, and we're going to manage you. We're gonna we're gonna check up and you and make sure that what you're doing or doing your job. But as long as that works, you can continue that indefinite, all right. So that gets right to the idea here, Nicholas about productivity, and I guess the perceptions of productivity. A lot of companies. They want to look over your shoulder and know that you're doing the work that you're supposed to be doing. Here.

What is your data showing here about the level of productivity during the COVID crisis with everyone at home? Well, quite surprisingly, working from a home appears to be slightly more productive than being in the office. So that's based on survey responses and not some data we've got on a few individual firms. My concern, and most firms concern, is that won't last forever. So we kind of entered into the pandemic with this stock of what you might

call social capitals. So we've been in the office for years together, we knew each other, we've been creative together. I don't think that can last forever. What we're doing right now working at home five days week so on productivity, the reason firms are going back is hybrid seems to be the best for productivity. Spent three days in the office social you know, or your meetings or your team

events or your clients events. Are there two days a week quietly working at home, when you save the commute and you're actually better at quart time, It looks like that maximizes productivity. And consut and employees love working from home hybrid. They love to get two days a week at home. So this is why this plan has been so universal. Is this really the best of both world? BOMs are more productive and we as you know, employees

are actually happy. Well, what about career advancement? Another criticism of the work from home movement is this idea that you need that FaceTime. If I want to move up in my career, I need to be face to face with Tim Keene every day, so it doesn't forget that I exist. Yes, exactly right. So again the thing I've spoken quite you know, vocally on and it's been someone controversialist. Career advancement is fine as long as you are coming in the same number of days as the people you're

being competing against. So look, if I'm if I'm in a team of ten people and I'm at home full time and the rest of them are coming in you know, three days, we can imagine I'm going to get left behind. As long as the whole team comes in on the same three days and stays at home on the other two, things are good because you're compared with people are doing the same type of what schedule with you. No one's getting ahead of the boss because we're all coming into

the same number of days. So the big problem is boems that are going for this choice plan, whereby they say, as long as you're doing your job, you can choose the number of days you come in. You can imagine that, you know, down the roads can be very problematic. Some people come in one day a week summer, come in five, and those that come in five are going to get promoted. Move ahead, Nicholas Bloom thank you for an early morning

in Palo altime. Professor Bloom was Stanford at University that I really can't say enough about his January research on this raging debate of work from home. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern. I'm Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and

international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg